Keeping Medicare and Medicaid Strong?

Medicare and Medicaid have been providing health insurance coverage to older people, people with disabilities, women, and families with children for more than 45 years.  These programs ensure that vulnerable populations who could not get health care coverage from private health insurance have access to basic health coverage.

The futures of the Medicare and Medicaid programs are currently in jeopardy as a result of "reform" and deficit reduction proposals under discussion in Congress. 

The House of Representatives' Fiscal Year 2012 Budget Resolution

On Tuesday, April 5, 2011, Congressman Paul Ryan (R – WI), who chairs the House of Representatives Budget Committee, introduced the House Republican Budget Resolution for Fiscal Year 2012, which begins on October 1, 2011.  Congressman Ryan calls his budget "The Path to Prosperity:  Restoring America's Promise."  The Budget Committee web page states:

The budget advanced by the House Budget Committee ensures real security through real reform. (Emphasis added.) The House Budget Committee's FY2012 Budget Resolution helps spur job creation today, stops spending money the government doesn't have, and lifts the crushing burden of debt….

REAL SECURITY: Fulfills the mission of health and retirement security for all Americans by making the tough decisions necessary to save critical health and retirement programs. (Emphasis added.)[1]

According to a summary fact sheet, the House Budget Resolution would reduce the deficit by $4.4 trillion over 10 years.  It would do so primarily by cutting $6.2 trillion in government spending over the same time period.[2]  Two-thirds of this amount comes from programs that serve low-income individuals.[3] Of this amount, almost $1.4 trillion would come from Medicaid; $771 billion from direct cuts and $600 billion from repealing the Health Care Reform extension of Medicaid coverage.  In addition, the Budget Resolution shows some $30 billion in direct cuts coming from the Medicare program, plus many undisclosed off-sets, including the cost of correcting payments to physicians, which some estimate may cost as much $200 billion.[4]  This figure does not take into account that the Budget Resolution does not repeal provider payment changes included in Health Care Reform that already reduce future Medicare expenditures . Thus, the House Republican Budget Resolution proposes to provide "real security" to older Americans, people with disabilities, and families by reducing funding for and changing the nature of the health programs upon which they rely.   This hardly seems like a path to "real security" for Americans who rely on Medicare and Medicaid.  Instead, these changes represent a threat to the vulnerable individuals who rely on them, to families and to state and local governments, as well.

Health Care Reform and Reductions in Medicare Spending

The Affordable Care Act (ACA),[5] the Health Care Reform law that was enacted in 2010, also included reductions in Medicare spending. The actual projected reduction in Medicare spending at the time of enactment was $428 billion over 10 years, after taking into account $105 billion in new Medicare spending.[6] As discussed below, unlike the 2012 budget proposal, the steep ACA-mandated spending reductions keep the Medicare program intact and make no change to Medicare as a guaranteed, defined benefit program. 

Ironically, many of the legislators who support Congressman Ryan's Budget Resolution have said they object to Health Care Reform in part because of its reduced funding for Medicare.[7] For example, House Budget Committee member Rep. Mike Simpson (R-ID), said of Health Care Reform, "It contains devastating cuts in Medicare payments that will put seniors' access to care at grave risk in order to offset the cost of [health care reform]."[8]

Another Budget Committee member, Rep. Ken Calvert (R-CA), explained, "I voted against nearly $500 billion in cuts to Medicare that were included in the Obama and Pelosi supported government take over of health care.  I will continue to fight these deep cuts to vital Medicare services."[9]

House Majority Leader Eric Cantor (R-VA) said of Health Care Reform, "The Democrats' trillion dollar health care overhaul will…cut Medicare benefits for seniors…"[10]

Supporters of the approach outlined in Congressman Ryan's Budget Resolution seem to have forgotten these frequently-stated concerns that the health care reform debate raised regarding protecting Medicare and those who rely on it.  In fact, the proposed Budget Resolution eliminates Medicare as we know it and replaces it with a voucher for the purchase of an individual private plan.

How Savings Are Achieved:  Health Care Reform v. House Budget Resolution

• Health Care Reform: As we have previously reported, the ACA achieves savings in the Medicare program through a series of payment reforms, service delivery innovations, and increased efforts to reduce fraud, waste, and abuse.  The greatest savings, $130 billion over 10 years,[11] comes from reductions in vast overpayments to private Medicare Advantage plans, which have been paid, on average, 9-13% more than the traditional Medicare program to provide the same coverage.[12]

The law also creates the Independent Payment Advisory Board (IPAB), a new quasi-governmental body that will take over from Congress the function of establishing Medicare payment policies.[13]   Policymakers anticipate that the IPAB, which is to commence operations in 2014, will be able to achieve an additional $15.5 billion in savings to the Medicare program from 2014-2019.[14] The IPAB must submit proposals to Congress to reduce Medicare spending if certain statutorily-defined parameters are reached.  These cost-cutting proposals would go into effect if Congress does not take alternative action.   Concerns have been expressed about placing this kind of power in an independent, unelected body.  The IPAB schema, however, does at least provide some measure of congressional evaluation of the wisdom of going forward with proposed cuts.  The newly proposed Budget Resolution, on the other hand, while repealing the IPAB provision, merely draws a line in the sand, and makes draconian changes.

Two essential and important points about Health Care Reform and Medicare warrant repeating.  First, the Medicare projected savings in Health Care Reform actually extend the life of the Medicare Part A Trust Fund by about a decade.[15]  Second, none of the payment reforms included in the law affect Medicare's guaranteed benefits package. Indeed, the Health Care Reform lawspecifically states that the guaranteed benefits in Medicare Part A and Part B will not be reduced or eliminated as a result of changes to the Medicare program.[16]  The Health Care Reform law also prohibits the new IPAB fromchanging eligibility or benefits, reducing the Part D low-income subsidy, or rationing care.[17] None of these safety measures are contained in the proposed Budget Resolution.

• 2012 House Republican Budget Resolution:[18]  The Budget Resolution does not call for innovative delivery system reform that would reduce Medicare spending by reducing overall health care costs.  Instead, it calls for the repeal of Health Care Reform, thereby ending all statutory authority and funding for the development of delivery system reforms that would slow the growth of health care costs, as well as repealing limits on wasteful overpayments to private plans.[19]

If Health Care Reform is repealed, the provisions that protect the current Medicare Part A and Part B guaranteed benefit package and that protect changes to eligibility and benefits as part of cost-containment efforts would no longer be in place. Instead of guaranteeing benefits, the Budget Resolution requires new Medicare beneficiaries, starting in 2022, to purchase private insurance through a "tightly regulated exchange for Medicare plans."[20]  Such an exchange would probably be similar to the Medicare Advantage market, which has dramatically increased, not decreased, the cost of Medicare.  The Budget Resolution would increase the age of Medicare eligibility by two months each year, starting in 2022, until 2033, when eligibility based on age would begin at age 67.

Additionally, and most importantly, the Budget Resolution turns Medicare into a voucher program, with a set payment for each beneficiary going directly to private insurance companies, and with no guarantee that specific benefits like hospital coverage, skilled nursing facility care, doctors' visits, durable medical equipment, home health care, and preventive services would be covered by the private insurance sold through the Medicare exchange.  There also is no guarantee that the amount of the voucher would be sufficient to purchase a private health insurance plan, or to purchase a plan that provides sufficient coverage and protection for older people and people with disabilities.

The amount of the voucher could vary depending on the health and income of the beneficiary.  Higher-income beneficiaries would receive a smaller percent of this so-called "premium support" amount.  The Congressional Budget Office (CBO) in a letter to Congressman Ryan says that the voucher for the typical 65-year old in 2022 would be $8000, the amount anticipated that the government would spend under Medicare for an average 65-year-old.  CBO also states, however, that under the proposed program the typical 65-year old Medicare beneficiary would spend more than twice what s/he would spend if the program were not changed.  

The Budget Resolution appears to eliminate Medicare Savings Programs and the Part D low-income subsidy that provide thousands of dollars worth of assistance with premiums and some cost-sharing for individuals with low incomes and resources. Starting in 2022, low-income beneficiaries would be given a Medical Savings Account in which would be deposited a payment to be determined annually by the government.  The amount of the contribution in 2022 is estimated to be $7,800[21].

By repealing Health Care Reform, the Budget Resolution would also eliminate the extension of Medicaid coverage scheduled to go into effect in 2014.  The Budget Resolution also does not guarantee that individuals who currently rely on Medicaid would have health insurance coverage.  It would turn Medicaid into a block grant program, awarding a flat, set amount of Medicaid funding to each state.  States would decide how to spend the money, with no guarantee that individuals who currently receive services would continue to be covered, or that the services upon which they rely – including coverage for nursing home care and other long-term supports and services – would still be available.

Instead of slowing the growth of Medicare costs and health care costs overall, and instead of expanding health insurance coverage, the House Republican Budget Resolution reduces the deficit by shifting costs to consumers and to states.  The CBO concluded that a typical Medicare beneficiary would pay more under the voucher program because (1) private insurance plans cost more than traditional Medicare; and (2) the voucher contribution would not keep up with the cost of health care, requiring the beneficiary to pay the difference.  CBO projected that a typical beneficiary's share of spending on premiums and other out-of-pocket costs would rise to 68% of the cost of his health coverage by 2030.[22]

Additionally, the Resolution seeks to repeal innovative cost-saving measures in Health Care Reform, yet it would implement new spending cuts that are not designed to control total costs, but rather to shift those costs to beneficiaries.

The CBO also concluded that the Budget Resolution would shift Medicaid costs to states, which might encounter difficulties in determining how to achieve savings as a result of lost federal funding.  States could cut already low Medicaid payments to providers, reduce benefits, and/or reduce eligibility.  The Budget Resolution does not take into consideration economic downturns when determining block grant amounts, meaning states would have less Medicaid funding as need increased, rather than more funding as they do under current Medicaid law.[23]

In other words, the 2012 Budget Resolution includes the very kind of devastating cuts to Medicare and Medicare benefits, as well as threats to health security for people who rely on Medicaid, that those who opposed Health Care Reform had vowed to fight.

Public Opinion

Recent public opinion polling reveals that the public strongly opposes the elimination of Medicare and Medicaid as they currently exist. In his column dated April 5, 2011, Drew Altman, President and CEO of the Kaiser Family Foundation (KFF), outlined the results of a poll taken by KFF and the Harvard School of Public Health from January 2011.  Not surprising, only 8% of those polled supported major reductions to Medicare.  Dr. Altman was surprised to report, however, that only 13% of those polled supported major reductions to Medicaid, a program thought to have less support among Americans because it is viewed as a welfare program.[24]  These findings conflict with the thrust of the House Republican Budget Resolution, which would make radical changes to both Medicare and Medicaid.

Implications for Americans

The Budget Resolution states, "Rationing is an inferior solution to Medicare's problems."[25]  Yet giving Medicare beneficiaries vouchers is just rationing by another name; those who cannot afford the cost of comprehensive health insurance coverage will not get needed care.  Similarly, turning Medicaid into a block grant is a form of rationing – those who are not covered because their state's money ran out, or who need services that are no longer covered, or who cannot find providers willing to take a very low Medicaid payment, will not get care.

Medicare beneficiaries are already burdened by high out-of-pocket expenses.[26]  They lack the financial resources to pay any more than they already do for their medical costs. According to the Kaiser Family Foundation, half of Medicare beneficiaries had incomes below $20, 644 in 2010; a quarter of beneficiaries had annual incomes below $12,685.[27]

Future Medicare beneficiaries are not any more likely to be able to afford the higher costs of a Medicare voucher program that does not guarantee coverage for services they need.  Indeed, the Kaiser Family Foundation projects even greater income disparity between white beneficiaries and black and Hispanic beneficiaries, and an even wider income gap between those beneficiaries at the higher end of the income scale and those at the lower end.[28]

Further, as the 2012 Budget Resolution, in the guise of deficit reduction, shifts more costs onto vulnerable older people, people with disabilities, and low-income people of all ages, it simultaneously extends tax breaks for the wealthiest individuals and corporations,[29] groups that already benefit from favored tax status.[30]

It is hard to see how the proposed Budget Resolution that purports to "lift the crushing burden of debt" from the federal government and shifts it instead onto our most vulnerable citizens would be "real reform" for the vast majority of American families.